O-I Glass, Inc. (OI - Free Report) continues to benefit from a growing preference for glass packaging, focus on innovation, capacity expansions, the ongoing successful joint venture and acquisitions.
Currently, this manufacturer of glass containers carries a Zacks Rank #3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3 offer the best investment opportunities.
Factors Favoring O-I Glass
Shares of the company have lost 67.5% over the past year compared with the industry’s decline of 63.5%.
Return on Equity (ROE)
O-I Glass’ trailing 12-month ROE supports its growth potential. The company’s ROE of 45.2% compares favorably with the industry’s average ROE of 42.1%, reflecting that it is more efficient in utilizing shareholders’ funds.
Valuation Looks Rational
O-I Glass is currently trading at a trailing 12-months P/E multiple of 2.8, while the industry’s average is pegged at 3.6. Consequently, the company is undervalued compared with its industry peers.
Growth Drivers in Place
O-I Glass focuses on improving operating performance through several turnaround initiatives, enhanced factory performance as well as footprint adjustments in North America. These factors will boost its current year’s results.
O-I Glass’ operating performance through February has been solid and in line with its recent earnings guidance for the current quarter. The company anticipates adjusted earnings between 40 cents and 45 cents per share for the ongoing quarter. Further, higher shipments in the Asia-Pacific region, including China, and the benefit from the Nueva Fanal acquisition offset continued lower beer demand in North America.
Despite the challenges associated with the coronavirus outbreak and the economic downtime, O-I Glass’ business continues to operate without interruption and recent demand patterns have been reported to be stable through early March.
However, the continued decline in beer consumption in the domestic market since 2018 is a major headwind. Although the company continues to mitigate the impact of the ongoing decline in mega beer in North America by positioning itself to benefit from the rapidly growing U.S. beer import market. It intends to achieve this through its joint venture (JV) with Constellation Brands, Inc. (STZ - Free Report) and long-term sales contracts in Mexico.
O-I Glass is driving innovation in the glass segment, evident from the development of MAGMA, a revolutionary breakthrough initiative to reimagine glassmaking with transformational technology and new processes. Additionally, it launched O-I: Expressions, a direct-to-glass digital printing technology that will enable brands to create highly personalized and customized glass packaging at an affordable value. These innovations will lead to new opportunities in the near term.
The company’s top priority remains investments in the business. It intends to achieve this by investing in JVs and incremental capacity, and through bolt-on acquisitions in emerging geographies, while delivering a favorable return on invested capital. In sync with its continued divestiture program, the company sold its interest in a soda ash JV and the proceeds were utilized for debt reduction.
The company acquired a 49.7% interest in Empresas Comegua S.A with two glass manufacturing facilities in Costa Rica and Guatemala. The buyout has aided the company to expand presence into new and growing glass markets in Central America and the Caribbean. The company’s Nueva Fanal acquisition supports its growing premium beer category in Mexico. The buyout along with the previous acquisition of Vitro's food and beverage business solidifies O-I Glass’ position in the attractive and growing glass segment of the packaging market in Mexico and Central America.
In the United States, glass demand is growing owing to favorable consumer trends and increased preference of customers for glass packaging. Also, non-beer categories in the region continue to grow. Moreover, the growing glass-packaging market in Western Europe, the brownfield expansion, supply-chain performance and footprint optimization position the company well for volume growth and margin expansions in the European region.
Investors might want to hold on to the stock, at present, as it has ample positive prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector include Cintas Corporation (CTAS - Free Report) , and Tetra Tech, Inc. (TTEK - Free Report) . Both of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Cintas has an expected earnings growth rate of 15.7% for the current year. The stock has appreciated 10.2% over the past year.
Tetra Tech has a projected earnings growth rate of 10.7% for fiscal 2020. The company’s shares have rallied 21.2% over the past year.
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